Internet Road Shows - Consider Copyright
Micalyn S. Harris, Winpro Inc.
The SEC has recently provided no-action letters to several on-line commercial
services which propose to offer issuers the ability to transmit "audio-visual
recordings of live road shows" to the computer terminals of "representatives of
institutional investors and investment advisers, sales and trading personnel
from firms participating in the offering and securities analysts."
Historically, road shows have been oral presentations to institutional
investors and investment advisers. Expensive and often elegant affairs, they
have required representatives of the offering issuer, together with
underwriters' representatives, to travel to several cities, arrange for meeting
rooms, and provide appropriate amenities. Any written materials passed out
during these meeting must be collected from attendees to avoid the possibility
that such materials will be deemed a "prospectus" and thereby required to meet
the requirements of Section 2(10) of the Securities Act. Because these
presentations are oral and strict controls are traditionally imposed on printed
materials leaving a road show meeting room, the presentations are not deemed
prospectuses, and thus, issuers and their underwriters have considerable
freedom in making these presentations persuasive without the lengthy
disclosures which are required to be included in a prospectus.
Internet road shows contemplate transmission of audiovisual recordings of live
road shows. In that respect, they will be "oral communications", but the means
of communication is not ephemeral. The audiovisual recording will consist of an
oral presentation reduced to a tangible medium. Using various technologies to
transmit both audio and visual messages to viewers' computer terminals, service
providers are offering arrangements pursuant to which companies can make their
road shows available to authorized viewers on a delayed basis. "Live"
transmission is promised when technology makes such transmissions possible. In
the meantime, the transmissions may include still photographs and graphics to
provide visual interest and information to accompany the audio transmission.
In addition to the "scripted" presentation, at least one service provider
seems to anticipate including the questions and answers presented during the
live road show in its internet version.
Looking toward the future, it appears that "streaming" technology would permit
"live" internet transmission of the road show, and two-way streaming technology
would permit authorized viewers to submit questions electronically and have
them answered in the same fashion. Subsequent (post real-time) viewers could
then have access to those "e-mailed" questions and answers.
The SEC's no-action letters indicate that the audiovisual road show will be a
somewhat "polished" version of the oral presentation because the service
providers have reserved the right to edit out dead time. On the theory that
perpetuating errors is undesirable, service providers have also reserved, on
behalf of the issuers and underwriters, the opportunity to edit out
misstatements and mistakes. While the SEC staff has indicated reluctance to
permit issuers to edit out mistakes, on the grounds that the electronic road
shows should be as much like the original as possible, the undesirability of
continuously publishing erroneous information makes it likely that some method
of correcting errors will be permitted. One alternative is to permit issuers to
add scrolling corrections across the screen as the original version's audio is
sent. Another possibility is to add an "addendum" similar to what might be said
at the end of a meeting if the error were caught before the meeting concluded.
The SEC has issued no-action letters to service providers offering internet
road shows to authorized viewers who agree to pay the service provider a fee,
either as part of a broader subscription or on a pay-per-view basis. The
arrangements described in these no-action letters contemplate that any special
expenses incurred in the service provider's attending, recording, and
transmitting the road show would be dealt with in separate arrangements between
the service provider and "content providers" (the issuer or sponsoring
The SEC's no-action letters to service providers appear to rely heavily on the
fact that the service providers will take effective steps to qualify authorized
viewers and prevent those viewers from performing the electronically- delivered
road shows. While at least one service provider claims to have technology which
will prevent viewers from "downloading" road shows onto their equipment,
alternative methods of copying are readily available, and supervision will be
virtually impossible. Therefore, it appears that both the service providers and
the SEC are relying primarily on good faith and contractual undertakings to
assure that internet road shows are not copied or redistributed by viewers.
Service providers are comfortable relying on inviting underwriters' knowledge
of authorized viewers. Underwriters base their invitations primarily on their
past experience with these viewers as trustworthy and reliable.
Traditionally, issuers also have relied on the good faith and good judgment of
persons attending road shows, but at live road shows, issuers and underwriters
send out invitations, and know attendees or the entities they represent - by
reputation if not personally. Where a road show is presented electronically,
there is no face-to-face contact, and at least one service provider has
indicated it plans to offer access to electronic road shows to subscribers
which the service provider will qualify.
This is a change from current practice. Currently, the sponsor of the road
show, usually the lead underwriter, issues invitations.
Where the service provider "invites" subscribers, its limited relationship
with the issuer may insulate the service provider from liabilities arising from
failure to adequately screen and qualify invitees. Whereas issuers and
underwriters are "in it together" when it comes to liability for breach of the
federal securities laws, the service provider has no such explicit liability.
The contract between the issuer or underwriters and the service provider
regarding recording and electronic delivery of the road show may not include
viewers, who may have separate contractual arrangements with the service
provider. Issuer and underwriters are likely to be third party beneficiaries of
viewers' obligations to service providers regarding undertakings to refrain
from performing electronically delivered road shows.
With oral road shows, surreptitious recording and distribution has not been a
problem. The ease with which high-quality recordings all of electronically
distributed road shows can be made and performed may, however, present new
Copyright may offer issuers and underwriters as joint holders, or issuers as
copyright holders and underwriters and service providers as licensees, some
additional protection against unauthorized performance. Such protection, and
even the threat of its assertion, may reduce concerns relating to unauthorized
performance by viewers where such unauthorized performance results in
allegations of failure to comply with the federal securities laws (e.g.,
because there is a general solicitation in connection with an offering intended
to be exempt under a private placement or Rule 144A exemption).
Copyright subsists in original works of authorship in fixed or tangible
medium, which explicitly includes audiovisual works and sound recordings.
Arguably, such works also fall within the protections of the Berne convention,
thus extending protection of copyrights to cross-border transmissions.
Copyright gives the copyright owner (which, in most circumstances, will be
either the issuer or the issuer and lead underwriter jointly) the exclusive
right to reproduce the copyrighted work, including the right to display the
copyrighted work publicly. Subject to "fair use,"
anyone performing an electronically delivered road show without the copyright
owner's permission would be guilty of copyright infringement, for which the
copyright owner would (if infringement can be proved) be entitled to damages.
Explicit reliance on copyrights could be implemented in several ways. One
approach would be to grant a limited license to the service provider by
imposing contractual obligations on the service provider to (i) acknowledge
issuer's and underwriters' copyrights and (ii) include, in its contracts with
authorized viewers, a similar acknowledgment. The service provider's contract
with authorized viewers might also require viewers to acknowledge that issuers
and underwriters will be irreparably damaged by unauthorized performance and
will have a cause of action against the viewer who breaches its obligations not
to perform. Additional terms might include an acknowledgment of these
obligations as direct obligations to issuers and underwriters. Viewers might
also be asked to agree to service of process and issuer's choice of forum if
they infringe issuer's copyrights by unauthorized performance of the
electronically-delivered road show. While issuers might assert all of these
rights without an explicit license to the service provider contingent upon
obtaining undertakings and acknowledgments from viewers, constructing direct
obligations of viewers to issuers and underwriters may put the latter in a
stronger position than they would otherwise enjoy as third party beneficiaries
of the contract between the service provider and each viewer.
By granting the service provider a limited license to perform the road show
under specified conditions, including imposition of required conditions on
viewers, issuers would also give themselves a cause of action against the
service provider who fails to obtain adequate undertakings from its authorized
viewers, as making the road show available in the absence of obtaining
specified undertakings from viewers would be beyond the scope of the license
and thus violate the holder's copyrights Service providers who seek exclusive
rights to perform a particular road show might also benefit if, as licensees,
they could assert copyright infringement as a cause of action against persons
violating their contractual obligations to the service provider to limit
performance. The contract between the licensor and the service provider should
deal explicitly with who has the right to enforce the copyrights. Depending
upon the terms of their arrangements, both copyright owner and service
provider-licensee may have a cause of action for copyright infringement against
unauthorized persons who gain access to their road shows and subsequently make
unauthorized performances available. (Such access would presumably be a breach
of security, which could also expose unauthorized persons to more serious
penalties, including possibly, criminal penalties under the Electronic
Communications Privacy Act).
In the U.S., it is now necessary to register a work with the Patent and
Trademark Office, within a reasonable time, in order to sue for copyright
infringement. Copyright notices appropriate for performance of unpublished
works are not required to establish U.S. copyrights, but problems of evidence
and proof may be eased when copyright notices are visible. Traditionally,
copyrights (which inhere from the moment of inception of a "creative work")
have been registered only when long-term dissemination is anticipated. Road
shows have a limited life in terms of their interest, and some underwriters
have insisted that the audiovisual tapes of road shows be destroyed in order to
prevent future reference to them. On the other hand, copyright registration is
simple, straightforward, and inexpensive. If the fact of unauthorized copying
or performance is proved, the result is infringement,
and remedies for infringement can be sought under the copyright laws. These
remedies include actual damages and any additional profits of the infringer, or
statutory damages "in a sum of not less than $500 or more than $20,000 as the
court considers just" which a court may in its discretion increase to a sum of
not more than $100,000.
Such use of the copyright laws is unprecedented (and therefore, untested).
Based on its copyrights, however, the copyright holder (issuer, underwriter, or
both, jointly) could reasonably argue that any fines, attorneys' fees and costs
of investigation arising from an alleged violation of the federal securities
laws (because reliance on an otherwise available exemption has been vitiated),
together with costs of any remedies imposed (e.g., registration) constitute
"actual damages" resulting from infringement. On that basis, the copyright
holder might seek recovery of these costs under the copyright laws. As
copyright holder, one might also argue that fees, commissions, and profits
resulting from the purchase and sale of the offered securities garnered by an
infringing broker-dealer constituted "additional profits" which are also
recoverable under the copyright laws. The tactic is novel and the outcome
uncertain. Nevertheless, the possibility of persons providing unauthorized
performances having to pay such damages might motivate all involved to take
extra precautions to avoid unauthorized performance of internet road shows.
Using the copyright law, however, would involve submitting a copy of the
copyrighted work, which is retained on file in the Patent and Trademark Office.
Accordingly, the possible advantages of registration must be weighed against
the possible disadvantages, such as unfriendly use of a road show in connection
with a shareholders' derivative suit. The decision to register, however, can be
delayed for a "reasonable time", thus providing an opportunity for review in
the light of some hindsight.
Copyright cannot provide a guarantee of good behavior on the part of viewers
of on-line or electronically delivered road shows, but copyright notices can
provide additional warning of an issuer's, underwriters' and service providers'
rights, and explicit assertion of copyrights opens the possibility of
additional causes of action and remedies if these rights are violated.
This article provides general information, and represents the views of the
author(s). It does not constitute legal advice, and should not be used or taken
as legal advice relating to any specific situation. Brief portions may be
quoted with attribution, including the name(s) of the author(s) and citation to
the publication in which they first appeared.
1998, Micalyn S. Harris. All Rights Reserved. Cite as: Micalyn S. Harris.
"Internet Roadshows: Consider Copyright," 2 wallstreetlawyer.com No. 2,
e.g. Incoming letter dated October 22, 1997, attached to SEC No-Action Letter Re
Bloomberg L.P. (October 22, 1997); see also Re Net Roadshow, Inc.
(July 30, 1997).
Incoming letter dated December 18, 1987, attached to SEC No-Action Letter Re
Internet Capital Corp. (ICC)
technology is currently available, but the equipment and software to send and
receive it is more elaborate than most computers currently include. Even if
service providers have or were willing to acquire the technology, most of their
customers do not have it, and therefore, such technology is not currently being
used for Internet road shows.
Incoming Letter dated December 18, 1997, attached to SEC No-Action Letter Re
Internet Capital Corp. (ICC)
U.S.C. Section 102 (6) and (7).
17 U. S. C. Section 107
U.S.C. Section 501
U.S.C. Section on 504